ACIT, MUMBAI V. MAHENDRA MISRIMALJI SHAH, MUMBAI

ITA 3992/MUM/2024

AI Insights

The case involves Mahendra Misrimalji Shah, who was assessed for the Assessment Year 2011-12. The AO treated purchases amounting to Rs.27,38,565 from two parties as bogus based on information from the Sales Tax Department. The assessee did not comply with notices under sections 142(1) and 148 of the Income Tax Act, leading the AO to make an addition of the entire purchase amount to the assessee's income. The CIT(A) later restricted this addition to 15% of the purchases, considering the gross profit. Both the revenue's appeal and the assessee's cross objection were dismissed by the ITAT, which upheld the CIT(A)'s decision.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 36995 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-01-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Assessment Year: 2011-2012
• Other Referred Cases: Swadeshi Polytex Ltd. Vs ITO (All) 127 ITR 287, CIT Vs Motor General Finance Ltd (254 ITR 449), PCIT vs. Pinaki D. Panani, Hemant M Mehta HUF vs. ACIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: BHARAT KUMAR
• Assessee Lawyers: PRAVIN SALUNKHE
• Keywords: Revised return; Bogus purchase; Onus to prove; Accommodation entries; Bogus
• Section: 148; 144; 142(1); 133(6); 139

Judgement Text

"P a g e | 1 ITA No.3992/Mum/2024 & C.O. 179/Mum/2024 Mahendra Misrimalji Shah A.Y. 2011-12 IN THE INCOME TAX APPELLATE TRIBUNAL “H(SMC)” BENCH, MUMBAI BEFORE SHRI AMARJIT SINGH, ACCOUNTANT MEMBER & SHRI SANDEEP SINGH KARHAIL, JUDICIAL MEMBER ITA No.3992/Mum/2024 (A.Y.2011-12) ACIT 506, 5th Floor, Piramal Chamber, Lalbaug, Mumbai- 400012 Vs. Mahendra Misrimalji Shah, Room No. 28, 2nd Floor, Lehari Building Khetwadi Lane, Mumbai - 400004 \u0001थायी लेखा सं./जीआइआर सं./PAN/GIR No. BJDPS7198J Appellant .. Respondent C.O. No.179/Mum/2024 (A.Y.2011-12) Mahendra Misrimalji Shah, Room No. 28, 2nd Floor, Lehari Building Khetwadi Lane, Mumbai - 400004 Vs. ACIT, Circle 19(1) 506, 5th Floor, Piramal Chamber, Lalbaug, Mumbai- 400012 \u0001थायी लेखा सं./जीआइआर सं./PAN/GIR No. BJDPS7198J Appellant .. Respondent Appellant by : Shri Bharat Kumar Respondent by : Shri Pravin Salunkhe Sr. DR Date of Hearing 05.12.2024 Date of Pronouncement 22.01.2025 आदेश / O R D E R Per Amarjit Singh (AM): The appeal filed by the revenue and Cross Objection filed by the assessee are directed against the order of NFAC passed u/s 250 of the Act dated 11.06.2024 for A.Y. 2011-12. P a g e | 2 ITA No.3992/Mum/2024 & C.O. 179/Mum/2024 Mahendra Misrimalji Shah A.Y. 2011-12 ITA No. 3992/Mum/2024 (Revenue’s Appeal) 2. Fact in brief is that return of income declaring total income of Rs.9,00,060/- was filed on 29.09.2011. Subsequently, AO has received information from the DGIT (Inv.) on the basis of information received from the Sale Tax Department that assessee had obtained accommodation entries of purchases from the following two parties to the amount of Rs.27,38,565/-: Sr. No. Name of the party Amount 1. Reliable Metal (India) 9,53,197 2. Samco Steel & Alloys 17,85,368 Total 27,38,565 3. During the course of assessment the assessee has not made compliance to the notices u/s 142(1) of the Act issued by the AO. Thereafter, the AO after referring the information received from the Sale Tax Department treated the 100% purchases made from the above parties as bogus purchases and added to the total income of the assessee. 4. The assessee filed the appeal before the ld. CIT(A). The ld. CIT(A) has restricted the addition to the extent of 15% of the impugned purchases to the amount of Rs.4,10,785/-. 5. Heard both the sides and perused the material on record. Without reiterating the facts as discussed supra in this order the ld. CIT(A) held that AO has not doubted the corresponding sales made by the assessee after referring the judicial finding restricted the addition to the extent of gross profit @ 15% on the impugned purchases to the amount of Rs.4,10,785/-. The relevant extract of the decision of CIT(A) is as under: P a g e | 3 ITA No.3992/Mum/2024 & C.O. 179/Mum/2024 Mahendra Misrimalji Shah A.Y. 2011-12 “5. The assessee filed his original return of income for A.Y.2011-12 on 29.09.2011 declaring total income at Rs.9,00,060/-. As per communication from the office of DGIT vide letter F.N. GIT (Inv.)/Corr. Field/2012-13 dated 26.12.2013 that according to information received from sales tax department the assessee was involved in taking entries of Bogus purchases from the following parties :- Sr. No. Name of the party Amount 1. Reliable Metal (India) 9,53,197 2. Samco Steel & Alloys 17,85,368 Total 27,38,565 Consequently, the case of the assessee was re-opened after recording the reason and notice u/s. 148 was issued on 07.03.2016 and served upon the assessee by affixture. In response to the notice u/s 148 the assessee did not file its return of income. Thereafter, notice u/s 142(1) dated 18.05.2016 was issued and served by affixture. However, the assessee neither attended nor filed return of income. 5.1. As per the information received from Sales tax Department, the assessee had shown purchases of Rs. 27,38,565/- from the above - mentioned parties during the financial year under consideration. During the course of investigation, the sales tax department found that the said concern were not doing any genuine business of sales/purchases and merely indulged in providing accommodation entries/bills. To verify the genuineness of purchases made by the assessee, notice u/s 133(6) was issued to the above- mentioned parties but could not be served. The assessee failed to substantiate the purchases made from the above-mentioned hawala dealers. Hence, the amount of purchases made from the alleged hawala dealers was treated as bogus purchase by the AO and added to the total income of the assessee. In the ground of appeal, the appellant has agitated as under:- “1. The Assessing Officer erred in holding that the assessee has also failed to substantiate the purchases made from the above mentioned hawala dealers Hence the amount of purchases made from the alleged dealers is being treated as bogus purchases made by the assessee and added to the total income of the assessee as the assessee was not aware of any such notice were issued or assessment proceedings is going on against him in the Income Tax Department.” P a g e | 4 ITA No.3992/Mum/2024 & C.O. 179/Mum/2024 Mahendra Misrimalji Shah A.Y. 2011-12 5.2. I have gone through the facts of the case and findings by the AO. From the facts, it is gathered that during the course of assessment proceedings, the appellant failed to comply with any of the notices /s 142 (1) of the Act issued by the AO on different dates and did not furnish any information as required. Accordingly, the AO invoked the provisions of section 144 of IT Act 1961. Section 144 reads as under:- Section 144(1): If any person- (1) If any person- (a) fails to make the return required under sub-section (1) of section 139 and has not made a return or a revised return under sub-section (4) or sub-section (5) of that section, or (b) fails to comply with all the terms of a notice issued under sub-section (1) of section 142 or fails to comply with a direction issued under sub- section (2A) of that section, or (c) having made a return, fails to comply with all the terms of a notice issued under sub-section (2) of section 143, The Assessing Officer, after taking into account all relevant material in his possession and giving reasonable opportunities to the assessee has completed the assessment of the total income or loss to the best of his judgment and determine the sum payable by the assessee on the basis of such assessment: Provided that such opportunity shall be given by the Assessing Officer by serving a notice calling upon the assessee to show cause, on a date and time to be specified in the notice, why the assessment should not be completed to the best of his judgment: Provided further that it shall not be necessary to give such opportunity in a case where a notice under sub-section (1) of section 142 has been issued prior to the making of an assessment under this section. 5.3. As per provisions of Section 144(1)(b) of Income Tax Act, 1961, if the assessee fails to comply with terms of a notice issued u/s 142(1), the Assessing Officer is to gather relevant material and to make the assessment of the total income to the best of his judgment and determine the sum payable by the assessee on the basis of such assessment. In \"Swadeshi Polytex Ltd. Vs ITO (All) 127 ITR 287 notice u/s 142(1) was given and the assessee failed to comply with the same -No further notice necessary before completing the assessment u/s 144\" held the court. Similarly, it was held by Hon'ble Delhi High Court in the case of CIT Vs Motor General Finance Ltd (254 ITR 449) that since the assessee, despite several opportunities granted did not; produce the relevant documents, an adverse inference had to be drawn against the assessee. As the P a g e | 5 ITA No.3992/Mum/2024 & C.O. 179/Mum/2024 Mahendra Misrimalji Shah A.Y. 2011-12 assessee did not produce the document, an adverse inference in terms of section 114 of the Evidence Act, 1872, had to be drawn to the effect that, had that document been produced, it would have gone against the interests of the assessee. In these facts and circumstances, the action of the AO to complete the reassessment cannot be faulted with.” In view of the above facts, the AO was justified in invoking the provisions of section 144 of the Act 1961. 5.4. Addition of Rs.27,38,565/- on account of bogus purchases:-- After going through the facts of the case and the findings by the AO, it is gathered that during the year under consideration, the appellant was involved in taking entries of bogus purchases aggregating to Rs.27,38,565/- from different parties as indicated by the AO in the body of the assessment order. During the course of investigation, the sales tax department has found that the said concerns were not doing any genuine business of sales/purchases and merely indulged in providing accommodation entries/bills. Despite affording number of opportunities by the AO, the appellant didn't adduce any evidence or documents to prove the genuineness of the purchases. Since, the appellant failed to substantiate the genuineness of the impugned purchases, the AO added the Rs. 27,38,565/- on account of bogus purchases to the total income of the appellant. Keeping in view the entirety of facts of the case, the AO was not justified in making the addition to the total income of the appellant by treating the entire purchases of Rs.27,38,565/- as bogus since nowhere the AO had questioned or doubted the genuineness of the sales of the assessee. The Hon'ble Bombay High Court in PCIT vs. Pinaki D. Panani held that even if the purchases made by the assessee are to be treated as bogus, it does not mean that entire amount can be disallowed. As the AO did not dispute the consumption of the raw materials and completion of work, only a percentage of net profit on total turnover can be estimated. Similarly, the ITAT Mumbai Bench in Hemant M Mehta HUF vs. ACIT held that in case of bogus purchases where sales are accepted, the addition can be made only to the extent of difference between the GP declared by the assessee on normal purchases vis-a-vis bogus purchases. Further, during the appellate proceedings, the appellant questioned the addition by treating the entire purchases as bogus whereas nothing was pointed out by the AO regarding the consequent sales made. The appellant further placed reliance on number of judgements to fortify its contention that only the profit element should be considered for making addition by the AO when the AO has not doubted the corresponding sales made by the appellant. The AO in the instant case made addition by treating the entire purchases as bogus. Keeping in view the facts and circumstances of the case, it will be fair to apply GP rate of 15% on the impugned purchases held to be bogus by the AO. The addition will work out to be Rs.4,10,785/-. Accordingly, the ground of appeal is allowed partially. 6. In the result, the appeal is allowed partially.” P a g e | 6 ITA No.3992/Mum/2024 & C.O. 179/Mum/2024 Mahendra Misrimalji Shah A.Y. 2011-12 6. We have perused the copy of paper book filed by the assessee wherein in the submission made before the Ld. CIT(A) on 06.06.2024 the assessee has submitted that during the year under consideration the gross profit of the assessee was 14.36% and the ld. CIT(A) has restricted the addition almost applying GP rate of 15% on the impugned bogus purchases. Looking to the above fact and circumstances we don’t find any reason to interfere in the decision of Ld. CIT(A) for restricting the addition almost to the extent of gross profit shown by the assessee. Since, the AO has not doubted the corresponding sales made against purchases, therefore, we do not find merit in the grounds of appeal filed by the Revenue. Accordingly, the ground of appeal of the revenue is dismissed. C.O. No 179/Mum/2024 “1. erred in restricting the addition of 15% of the alleged bogus purchases instead of deleting the additions; 2. failed to appreciate that re-opening proceedings based solely on information supplied by DIGT (Information) without independent application of mind is bad-in-law and ought to be quashed; 3. failed to appreciate that the additions have solely been made on surmise and conjecture without any evidence indicating the purchases to be bogus; 4. failed to appreciate that the Respondent has duly provided prima facie evidence to support genuineness of its purchases and therefore, the burden of proof to establish that the purchases are bogus shifts onto the Department and in absence of any evidence indicating the purchases to be bogus, the addition ought to have been deleted; 5. failed to appreciate that learned AO has neither rejected the assessee's audited books of accounts nor question the sales recorded therein and therefore, the addition ought to have been deleted.” P a g e | 7 ITA No.3992/Mum/2024 & C.O. 179/Mum/2024 Mahendra Misrimalji Shah A.Y. 2011-12 7. Since, we have dismissed the appeal of the revenue, therefore, cross objection filed by the assessee become infructuous and same is also dismissed. 8. In the result, the appeal of the revenue and cross objection filed by the assessee are dismissed. Order pronounced in the open court on 22.01.2025 Sd/- Sd/- (Sandeep Singh Karhail) (Amarjit Singh) Judicial Member Accountant Member Place: Mumbai Date 22.01.2025 Rohit: PS आदेश की \bितिलिप अ\u000eेिषत/Copy of the Order forwarded to : 1. अपीलाथ\u0014 / The Appellant 2. \u0016\u0017थ\u0014 / The Respondent. 3. आयकर आयु\u001a / CIT 4. िवभागीय \u0016ितिनिध, आयकर अपीलीय अिधकरण DR, ITAT, Mumbai 5. गाड$ फाईल / Guard file. स\u0017ािपत \u0016ित //True Copy// आदेशानुसार/ BY ORDER, उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपीलीय अिधकरण/ ITAT, Bench, Mumbai. "